World Bank Warns of Long-Term Fallout from Regional Conflict
Speaking to Asharq Al-Awsat on the sidelines of the launch of the World Bank's latest economic update for the Gulf Cooperation Council (GCC), Safaa El Tayeb El-Kogali, the Bank's Regional Director for the GCC, stated: 'Any conflict, especially in this region, can have long-lasting and adverse effects.' She noted that the fallout is not limited to energy markets alone, but also includes rising shipping costs, heightened inflationary pressures, and increased investor uncertainty.
While the World Bank's latest report, which was released on June 1, does not reflect the most recent escalation in the region, El-Kogali emphasized that it is 'still too early to fully assess the impact of the ongoing conflict.' She warned, however, that in such volatile conditions, investors tend to adopt a 'wait-and-see' approach, delaying decisions until clarity and stability return.
Despite challenges in the energy market, El-Kogali highlighted the resilience of the Gulf economies, thanks to sustained efforts toward economic diversification. In 2024, while the oil sector contracted by 3% due to OPEC+ production cuts, non-oil sectors grew by 3.7%, helping drive overall GDP growth to 1.8% — a notable recovery from 0.3% in 2023.
The World Bank projects the GCC economies will grow by 3.2% in 2025 and 4.5% in 2026, supported by easing oil production cuts and continued strength in non-oil sectors. However, El-Kogali stressed that these projections remain vulnerable to global trade volatility, oil price swings, and the evolving regional security landscape.
To mitigate risks, she urged Gulf countries to accelerate structural reforms, reduce dependency on oil, and boost intra-regional trade. Growth, she added, will also benefit from steady contributions from exports, investment, and domestic consumption.
El-Kogali emphasized that short-term risks include reduced export demand, oil market fluctuations, and regional instability affecting tourism and investor sentiment. Over the long term, threats such as low productivity growth, slow economic transformation, and over-reliance on fossil fuels could hinder progress.
She concluded by recommending fiscal diversification, tax reforms, and stronger regional trade links to create more resilient and adaptive Gulf economies.
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